Scientific Beta

Among the highlights of the August 2015 monthly performance report for the ERI Scientific Beta indices, all sixteen smart factor indices post positive performance over cap-weighted. The best performing index in the Developed World universe among smart factor indices is the SciBeta Developed Mid Cap Diversified Multi-Strategy index, with a relative return of 1.86% compared to the broad cap-weighted index.

Recent years have seen the development of numerous smart beta indices whose weighting schemes depart from those of cap-weighted indices. Smart beta indices may be obtained by tilting economic factors, such as book-to-market, size or volatility, or by introducing greater diversification into the index, as illustrated in multi-strategy indices. The positive performance of smart beta indices over the long term has been largely documented in the literature. However, these indices are exposed to risk factors that differ from those of cap-weighted indices and that may cause variations in performance over short periods. As a result, the presentation of long-term performance is not enough for investors, who are also demanding performance figures over recent and shorter periods. The present report gives a complete picture of smart beta index performance with both long-term and short-term figures that illustrate the variations in performance over the different time periods, as well as the variations in performance between the various strategies. As a result, combining the various smart beta strategies makes it possible to obtain more robust performance.

Among the highlights of the August 2015 monthly performance report for the ERI Scientific Beta indices: 

• This month, the best performing index in the Developed World universe among smart factor indices is the SciBeta Developed Mid Cap Diversified Multi-Strategy index, with a relative return of 1.86% compared to the broad cap-weighted index, while the SciBeta Developed Large Cap Diversified Multi-Strategy index posts the lowest relative return (0.40%). All sixteen smart factor indices post positive relative returns compared to the broad-cap weighted index this month. Year-to-date, the best-performing smart factor index in the Developed World universe is the SciBeta Developed Low Dividend Yield Diversified Multi-Strategy index, with a return of 4.45%, while the worst-performing index is the SciBeta Developed High Dividend Yield Diversified Multi-Strategy (-0.84%). Performance for smart factor indices exposed to risk factors known to be well rewarded over long periods remains strong, with annual performance in excess of broad cap-weighted indices ranging from 0.96% to 3.15% since inception for the Developed universe.
  
  
• Scientific Beta Multi-Beta Multi-Strategy (MBMS) indices associate an effective choice of weighting scheme, in terms of diversification, with an allocation to well-rewarded smart factors, to prevent indices from being too concentrated in one factor and to reduce their specific risks. This month, the SciBeta Developed Multi-Beta Multi-Strategy EW index and the SciBeta Developed Multi-Beta Multi-Strategy ERC index post relative returns of 1.42% and 1.38% respectively, compared to cap-weighted indices. Year-to-date, the relative returns of the SciBeta Developed Multi-Beta Multi-Strategy indices are positive (2.23% and 2.03%, respectively).
  
  
• Looking at Multi-Beta Multi-Strategy indices for various regions, we note that this month the best performing indices are the SciBeta Developed Asia Pacific ex Japan Multi-Beta Multi-Strategy indices, with a relative return of 2.45% for the EW scheme and 2.46% for the ERC scheme compared to the broad cap-weighted index, while the worst performing indices are the SciBeta United States Multi-Beta Multi-Strategy indices, with a relative return of 1.23% for the EW scheme and 1.22% for the ERC scheme compared to the broad cap-weighted index.
  
  
• Year-to-date, the best-performing Multi-Beta Multi-Strategy indices are the SciBeta United Kingdom Multi-Beta Multi-Strategy indices, with a relative return of 6.00% for the EW scheme and 5.52% for the ERC scheme compared to the broad cap-weighted index, while the worst performing indices are the SciBeta United States Multi-Beta Multi-Strategy indices, with a relative return of 1.62% for the EW scheme and 1.43% for the ERC scheme compared to the broad cap-weighted index.
  
  
• Over the long term, all Scientific Beta Multi-Beta Multi-Strategy indices post positive excess return compared to broad cap-weighted indices. Using long-term US track records since January 1, 1975 (40 years), the EW and ERC benchmarks post respective relative returns compared to cap-weighted indices of 3.95% and 3.76%.